新聚思 (SNX) 2015 Q4 法說會逐字稿

Good afternoon. My name is Laura and I will be your conference operator today for the SYNNEX 2015 fourth-quarter and full-year earnings conference call.

(Operator Instructions)

Today's conference call is being recorded. If you of any objections you may disconnect at this point. Thank you. At this time, I would like to pass the call over to Ms. Phyllis Proffer, Director of Investor Relations at SYNNEX Corporation. Ma'am, you may begin.

Thank you, Laura. Good afternoon and welcome to the SYNNEX Corporation earnings conference call for the FY15 fourth-quarter and fiscal year end -- ended November 30, 2015. Joining us on today's call are Kevin Murai, President and Chief Executive Officer; Dennis Polk, Chief Operating Officer; Marshall Witt, Chief Financial Officer; and Chris Caldwell, Executive Vice President and President of Concentrix Corporation.

Please note that some of the information you will hear today consists of forward-looking statements within the meaning of the federal securities laws. Such statements may relate to, without limitation, demand, growth, IT markets, profitability, revenue, non-GAAP net income and EPS margin, tax costs, shares, currency impact, tax rates, business plans and opportunities, customers, contracts and dividends. Actual results or trends could differ materially from our expectations. For more information, please refer to the risk factors discussed in our Form 10-K for FY14 and the discussion of forward-looking statements in our earnings release and Form 8-K filed with the SEC today. SYNNEX assumes no obligation to update any forward-looking statements, which speak as of their respective dates.

Also, during this call we will reference certain non-GAAP financial information. Reconciliation of non-GAAP and GAAP reporting is included in today's earnings release and the related Form 8-K available on our website at www.Synnex.com. This conference call is the property of SYNNEX Corporation and may not be recorded or rebroadcast without our specific written permission. Now I would like to turn the call over to Marshall.

Thank you, Phyllis. First I will review our results of operations and key financial metrics then conclude with guidance for the first quarter of FY16 before turning the call over to Kevin. Technology solutions and Concentrix business segments delivered exceptional results in Q4. Revenue came in towards the high end of our outlook and our non-GAAP net income and diluted non-GAAP EPS came in above the high-end of the outlook provided on our Q3 call. On a consolidated basis, total revenue was $3.55 billion, down 7.2% compared with $3.82 billion in the same quarter of the prior year.

Adjusting for FX of $109 million, revenue in constant currency decreased 4.3% year over year, which was primarily due to the loss of Beats, which was approximately $214 million. For the full fiscal year, SYNNEX revenue was $13.3 billion, a decrease of 3.6% from the prior year. Adjusting for FX of $439 million, revenues in constant currency was flat compared to the prior year.

Before turning to our sales by segment, I wanted to highlight that for FY15 total services revenues was greater than 10%. We now have broken out product and services revenue in a consolidated income statement. Services revenue represents Concentrix and product revenue represents technology solutions. Gross margins move around quarter to quarter based on customer mix and seasonality, so our focus in our remarks will continue to be in revenue and adjusted operating margins.

Technology solutions segment revenues were $3.18 billion, representing a decrease of 8.8% compared to the prior year. Technology solutions revenues were negatively impacted by the loss of Beats and FX of $89 million. On a constant currency basis, technology solutions segment revenues decreased approximately 6.2% year over year. Concentrix segment revenues were $374 million, up from $342 million in the year-ago quarter. Adjusting for the negative impact of FX of $21 million, revenue in constant currency grew 15.3%. Consistent with our expectations, we improved our loss-making contract, which Chris will speak to shortly.

Now turning to gross profit, our gross profit on Q4 revenues was $313 million, or 8.8% of revenues, compared with $314 million, or 8.2% of revenues, in Q4 of 2014. The increase in gross profit dollars was due to higher sales in our Concentrix business segment, partially offset by a loss of Beats and unfavorable FX impact.

For the full-year, gross profit dollars improved 8.4% to $1.19 billion and gross margin was 8.9% compared to 7.9% in the prior fiscal year. Q4 total selling, general and administrative expenses, excluding one-time acquisition and other integration expenses and amortization costs, increased as a percentage of revenue to 5.44%, or $193 million, compared to 4.95% of revenue, or $189 million, in the fourth quarter of FY14. The increase in operating expenses was due to growth in our Concentrix revenue.

For the full year our selling, general and administrative expenses, excluding one-time acquisition and other integrated expense and amortization costs, increased to $773 million, or 5.8% of revenue, in FY15, compared to $693 million, or 5.01% of revenue, in FY14. This increase was primarily due to full-year operating costs from the IBM CRM acquisition and organic growth, partially offset by favorable FX impact.

Q4 non-GAAP operating income was $120 million, or 3.38% of revenue, compared to $124.9 million, or 3.27% of revenue, in the prior-year fourth quarter. At the segment level, Q4 technology solutions non-GAAP operating income was $81.1 million, or 2.55% of revenue, down 15.2% from the prior-year quarter result of $95.6 million, or 2.74% of revenue, primarily due to lower sales in US and Japan, offset partially by lower selling, general and administrative expenses.

For Concentrix, non-GAAP operating income in the quarter was $38.8 million, or 10.38% of revenue, up from the prior-year quarter result of $29.1 million, or 8.52% of revenue, primarily due to higher sales and the resolution of our loss-making contracts. For the full fiscal year, non-GAAP operating income grew 3.1% to $419 million, or 3.14% of revenues in 2015 compared to $407 million, or 2.94% of revenues, in 2014. Net total interest expense and finance charges for Q4 were $7.2 million, up from $6.9 million from in the prior-year quarter.

For the full year our interest expense was $26.3 million compared to $25.2 million in the prior year. The tax rate for the fourth quarter of FY15 was 36.7% compared to 37.6% in the prior-year period and for the fiscal year, it was 36.2% compared to 36.6% in 2014. Our fourth-quarter non-GAAP net income attributable to SYNNEX Corporation was $71.6 million, or $1.80 per diluted share. The full-year 2015 non-GAAP net income attributable to SYNNEX Corporation was $249.9 million, or $6.28 per diluted share.

Turning to the balance sheet, our accounts receivable totaled $1.8 billion on November 30, 2015, for a DSO of 45 days, down five days from the prior-year quarter. Inventories totaled $1.3 billion, or 37 days, at the end of the fourth quarter, up one day from the fourth quarter of 2014. Days payable outstanding was 41 days, consistent with the prior year fourth-quarter. Hence, our overall cash conversion cycle for Q4 2015 was 41 days, representing an improvement of four days and Q4 of 2014. Our financial operations team did an outstanding job efficiently managing working capital.

From a financing perspective, our debt-to-cap ratio this quarter was 29%. Preliminary cash flows generated from operations were approximately $102 million for the fourth quarter and approximately $659 million year to date. We renewed and extended our Japan term loan and revolving credit facility for three years, reducing margin on our TIBOR-based interest rate from 1.4% to 0.7%. At the end of Q4, between our cash and credit facilities, SYNNEX had over $1.7 billion available to fund growth.

Other financial data and metrics of note for the fourth quarter are as follows. Depreciation expense was $13 million; amortization expense was $13 million; HP, at approximately 24% of sales, was the only vendor accounting for more than 10% of sales. This represents the combined HP businesses up through October 2015 and HP Inc. for the month of November 2015. Per quarter four on a pro forma basis, HP Enterprise was approximately 8% of sales and HP Inc. was approximately 18% of sales. Capital expenditures for the quarter was approximately $29 million, primarily due to continued Concentrix facility expansion.

Trailing fourth-quarter ROIC was 9.2% and excluding the impact of one-time acquisition and other integration expenses and amortization, trailing four-quarters ROIC was 10.4%. As described in our earnings release, the Board of Directors approved a regular quarterly cash dividend of $0.20 per common share to be paid on January 29, 2016, to stockholders of record as of the close of business on January 15, 2016.

Now moving to our first-quarter 2016 expectations, we expect revenue to be in the range of $3.23 billion to $3.33 billion. For non-GAAP net income, the forecast is expected to be in the range of $53.6 million to $55.6 million. Non-GAAP diluted EPS is anticipated in the range of $1.34 to $1.39. Non-GAAP net income and non-GAAP diluted EPS guidance excludes after-tax costs of approximately $7.7 million, or $0.19 per share, related to amortization of intangibles. Weighted average shares estimated for diluted EPS are 39.6 million. These expectations include an anticipated negative currency impact of approximately $55 million on revenue.

Please note that these statements of Q1 expectations are forward-looking and actual results may differ materially. I will now turn the call over to Kevin.

Thank you, Marshall, and good afternoon to everyone on the call. I'll begin my comments on our fourth quarter and discuss our full-year 2015 results before turning the call over to Chris. I will then discuss our views on the 2016 fiscal year.

Overall, I'm very pleased with our fourth-quarter results. Our revenue at $3.55 billion was in line with our expectations and was stronger than the market in most segments. Our Concentrix business was a star performer, growing 9% over the same quarter last year, driven by increased seasonal demand and also benefiting from new business wins over the past few quarters. Concentrix delivered record adjusted EBITDA of $49 million and achieve non-GAAP operating margin of over 10%.

Technology solutions revenue was about flat to the same quarter last year when factoring for currency exchange and Beats headwinds. The US distribution business grew low single digits when factoring for Beats and Canada grew almost double digits in local currency. Japan revenue declined by over 10% in local currency, with market demand improving in the commercial segment but remaining soft in the consumer segment. Our profit was solid at approximately 3.4% non-GAAP operating margin and $1.80 non-GAAP diluted EPS, which demonstrates the quality of our business and our focus on higher margin product and service categories. Overall, a very strong performance.

And we have a lot to celebrate with our full-year 2015 performance. Concentrix had an outstanding year. Record revenue of $1.4 billion, which is 37% growth in constant currency, record contract signings of about $1.7 billion and record adjusted EBITDA of $150 million. In addition, we signed over 43 new logos during the year.

Technology solutions had many successes as well. We continue to add vendors to our line card, including extending our relationship with Dell in Canada. We grew our Hyve business and engaged more clients a continued to grow our operating margin. As a company, we received many accolades from our vendor and customer partners as well as from third-party recognition for Concentrix from HSF Research and Gartner.

So despite the initial headwinds we faced at the beginning of the year with the loss of the Beats contract, a problematic contracting Concentrix and unfavorable currency exchange, we delivered a solid year, generating over $650 million in operating cash flow and making progress towards our three-year revenue and margin goals. Now I'll turn the call over to Chris for more color on the Concentrix business. Chris?

Thanks, Kevin. This was a record quarter for Concentrix that capped a very successful year. Once again, our teams executed well as we posted strong revenue and profit while managing through a number of seasonal dynamics. Our revenue for the quarter was $374 million, which is up 9.3% on a year-over-year basis while absorbing FX headwinds. In constant currency, we grew 15.3% and continued our trend of above-market growth rates.

We continue to show excellent traction on adding new clients to our portfolio, both in our more mature markets as well as in some of our emerging markets. As a matter of fact, we added 11 new clients this quarter alone, and it's not just about adding new clients but the continued expansion of our relationships and the trust our clients have an us as we see strong organic growth and an excellent rate of renewing existing contracts.

As an example of our continued focus to deliver high-value offerings, one of the new clients we signed this quarter was a major multinational consumer goods company who hired us to provide digital content production and consulting services for their digital engagement globally. This will be delivered in the coming quarters out of four different centers around the world 24 by 7, 365 days a year.

Another example is that we have been selected to help a major Middle East telecom company launch a new set of services in the marketplace that will enrich their clients experience through true 360-degree customer platform that we helped design and helped create. Both of these examples demonstrate the momentum we have in delivering high-value offerings to our clients.

In Q4 we were also very pleased and placed well in the Horses for Sources analyst winning circle ranking for our healthcare offering and won a government industry Gold Award for outstanding achievement in corporate social responsibility.

I also wanted to take a moment to update you on the contract we had talked about in previous quarters that has weighed on our earnings. I'm happy to report that we came to an agreement with our client on the new economics around the program and while a smaller contract than originally expected, it will be profitable for us on a full-year basis going forward. The contract now has an end in early 2017 if both parties aren't satisfied with the results.

We did make a profit in Q4 on this contract ahead of our original plan. Now, going forward, this contract won't make money each quarter. In fact, it is expected to deliver a loss of approximately $5 million in the first quarter, but on a full-year basis, we expect it to be positive.

As we look forward to the first quarter, we expect a seasonal step down from Q4 as Q1 tends to be our softest quarter, as we have mentioned in the past calls. We also expect a step up in our depreciation expense this quarter which will be more pronounced and have impact to operating income as we have made significant investments to our infrastructure to house over 30,000 new staff members we've added to our business over the last year. The depreciation will be up 47%, or $4 million, on a year-on-year basis for the first quarter.

I would like to thank the entire team around the world for another terrific quarter and a fantastic 2015. I'd also like to thank our clients for their confidence in Concentrix. Kevin, I'll turn the call back to you.

Thank you, Chris. So now looking forward into 2016, I'm optimistic about our ability to drive shareholder value. Across our businesses, our markets continue to change and evolve. We believe we have been able to sustain our leadership position in the markets in which we compete through our ability to anticipate these changes, identify new pools of value and invest in growth areas.

In our Concentrix business, after coming off a very successful year of growth, I expect that momentum to continue with an enhanced focus on growing our business in key high-growth, high-value verticals such as healthcare, insurance, banking and financial services and technology. In addition, we continue to refine our back-office processes and as we're able to streamline and improve in these areas, we expect to achieve more efficiency.

In our technology solutions business, I feel positive about the investments we've made in pursuing growth categories related to cloud, mobility and big data. We continue to onboard new partners that have differentiated offerings in this space. We've created an as-a-service business platform that we are transacting business on today and our high-solutions business is a key differentiator. And legacy IT will continue to be a very large market. With our strong customer focus and execution excellence, we expect to be in a good position to increase our share in these markets.

As we outlined in our Analyst Day back in July, we've established three-year goals around revenue growth and operating margin expansion. We have discrete plans against these goals and we believe we are on track to achieve them. Our customer-centric approach is guided our investments in technology and solutions within the past five years and we've achieved many advances which will serve us well going forward, organic revenue growth faster than the overall IT market; solid growth in operating margin; Concentrix becoming a growing part of our margin and cash flow profile; net income growing faster than revenue growth and ROIC consistently higher than our weighted average cost of capital.

So now turning to our guidance for the first quarter of 2016, we expect to maintain our sales momentum in both our business segments and to maintain our strong profitability in technology solutions. In Concentrix, as Chris noted, we expect some profit headwinds but still expect to deliver solid EBITDA consistent with our year-ago quarter. I'm encouraged by our sales momentum in our Concentrix business and our ability to grow this business faster than the market through 2016.

In technology solutions, we expect the US market to be stable with opportunity driven by recent federal budget approvals and anticipated approved availability for products using the Intel Skylight technology. This quarter, our tough year-on-year compares with Beats lapses with about $67 million of Beats revenue from Q1 of 2015.

In Canada, we expect the market to continue to improve and in Japan, we also expect some improvement although still somewhat soft. We're anticipating foreign exchange headwinds, although we expect this will subside later in the year. Our guidance reflects above-market performance across both of our business segments.

I'm proud of the results SYNNEX achieved in 2015. We have a culture of setting high goals for ourselves and although we did not reach all of them, we delivered shareholder value and grew in our focus market.

More importantly, we made good progress on continuing to evolves our Company and prepare for the future. This could not have been accomplished without the hard work, dedication and innovation of our leadership and our associates. I want to thank all of our associates around the world for their individual and collective accomplishment. I also want to thank our business partners and shareholders for their continued support. With that, Operator, let's turn the call over for questions.

(Operator Instructions)

Brian Alexander, Raymond James.

Okay, thank you. This is Adam in for Brian today. Just wanted to ask on TS in the fourth quarter, the margin that we saw there with below-seasonal margin expansion sequentially. How much of this is from mix, competition, vendor incentives, and is there anything permanent that has changed from your confidence in TS margin of 2.5% to 2.9% per year?

Thanks, Adam. Really, it's a business mix equation. There really was nothing different around market competition. I'd say it's been relatively stable, but it's really business-mix driven. Also remember that I've made remarks regarding Japan and some of the shortfall that they had to our expectations and sales and of course, as we're not able to drive the kind of top line in Japan that we expect we do have a bit of an impact on bottom line for that business as well. But overall, it's really more of the same. Frankly, going forward we do expect some of the softer markets to continue to recover and we do expect that margin does returned back to where we've seen it.

Okay, and just one quick follow-up. If I look at the overall guide, I think it implies an operating margin of about 2.9% or so, which is down year over year but revenue is up in the mix of Concentrix is better. Understand you've got the $5 million headwind that you mentioned there, but just trying to understand that implied margin guide to make sure I'm on track there. If I add back that $5 million, I think I'm getting to Concentrix margins at about 9%. Is that a level that we're going to expect to continue going forward? Any pace that you can give us on impact of lumpiness throughout the year?

In addition to the $5 million that we called out, we also called out increased depreciation. If you're looking on a year-on-year basis for Q1, there's increased depreciation through the investments that we've made it infrastructure in Concentrix and that's around $4 million year-on-year difference. Overall, I'd tell you the Concentrix business continues to be very strong and in particular with the strong sales that we've had through last year, I really view some of the costs that we have in Concentrix really as a short-term impact but the long-term view, including the full-year view in 2016, is very positive. And yes, we are confident we're still on track to reach all of our margin and revenue targets over the three years.

Okay, thank you.

Thanks, Adam.

Jim Suva.

Thank you and congratulations. On the Concentrix, I think I heard correctly you said you pre-negotiated that challenging contract and it will be profitable an annual basis but in the March quarter it will not be profitable. Can you help me understand that? Is that because they are asking you to do something different or is it more seasonality volume driven or investments you had to put into place? Help me understand the dynamics around why it would not be profitable each quarter.

Jim, that's a great question. It's really driven by seasonality and we knew that there was always some seasonality within this contract even when we first signed up with it. The seasonality is driven by the volumes of the cycle that the client goes through. It's not a retail-type cycle but has similar kind of attributes in some ways. We actually loose in a few quarters and then get some fairly large payoff in some quarters later on in the year. As we point out, we made money this quarter under the new economic arrangement so we're confident that we'll be able to do it again and therefore know that it will be expected to be profitable on a yearly basis.

Okay. Then my follow up is also on Concentrix. As that business is growing, is it more growing with the same skill set and same attributes as your core business, or is it also reaching out to other service offerings, kind of like with this challenging contract that had to be renegotiated? I'm just trying to understand the risk profile of all these new wins as you grow going forward.

Jim, it's a bit of a combination. We have a number of wins and probably the majority of wins that are within our domain expertise that our business that we do and execute exceptionally well on and you've seen that business ramp over the last year, year and a half effectively flawlessly within our business. And then part of our portfolio is also adding on new services that are enhancements to our portfolio of business that we've actually already replicated through the course of the year with other clients, two that we point out this quarter, one where we are putting a platform for telecom player effectively with enhancement of technology and enhancement of skill set we already had but took us in a new direction to a higher value offering. That's what we're doing across our portfolio of clients to really drive margin enhancement, stickier, longer-term deals with our clients.

Okay. Then my last question is that's regarding the outlook for both businesses. Are there any one-off contract renewals or supplier distribution relationships that in, let's say, the next 12 to 24 months that either are at risk of rolling over or going away or going away from SYNNEX in totality? Again, both on the TS -- I'm sorry, the products as well as the services side? I know you had some contracts in the past that rolled over, Beats, just looking for anything we should be aware of or have on our radar screen for modeling purposes?

Jim, on the distribution side, on the tech side of the business, that business model I think you are well aware of which is yes, we do have contracts but they are evergreen type contracts and that's primarily on the vendor side. There's no change there and there's no milestone coming up there. On the Concentrix side, where we do have pretty much all of the business under longer-term contracts, or the most of it, anyway. In the past I know Chris has talked about one particular contract that was sun-setting towards the end of 2015, which absolutely is happening. We didn't talk about that in our prepared remarks but we will get basically zero revenue from that in Q1. But I also consider any other contract lapses and renewals part of the regular churn of business that we have and we're certainly expected to manage through those churns and grow the business on top of that.

Okay. Can you help me quantify or understand that coming off at zero Q1, maybe what it was a year ago or in Q4 just to look at organic?

Jim, it impacted us about $22 million in this quarter -- sorry, in Q1 that we had in Q1 of 2015. And specifically the reason we called that contract out was one, due to the size, which you've seen us grow through for the course of the last year and a half. Two, it was a contract that we acquired from the IBM acquisition and knew at that time that it would not be extending, so there was nothing we could do with it when it sunset.

Thank you and congratulations to you and your team and happy new year.

Great. Thank you, Jim, and happy new year to you too.

Osten Bernardez, Cross Research.

Hi, good afternoon. Thanks for taking my questions. I believe in your opening comments, Kevin, you noted that the TS business saw some softness a little bit during the quarter in the US and I wanted to know if you could highlight for us sort of what you saw and what linearity was end markets or the technology groups, if you could. I understand that you're calling for a normalized spending environment going forward, so what did you see or what are you seeing now that gives you that confidence that things are on the up and up for the US when it comes to IT (technical difficulty)?

Hi, Osten. I didn't make any comments on softness in the US through Q4. What I did say, though, is we believe in most of the segments we operate in across all of distribution, we believe we did do better than overall market demand. Called out softness in Japan for sure. Although it's an improving environment, the consumer market still tends to be a little bit soft. I would describe the US through Q4 as well is what we are seeing right now as stable and still growing. I think there are a couple of bright spots to point towards in the near term and going forward, which is with federal budgets being approved, there's now certainty to continued spend and demand in public sector. And then in addition to that, with a lot of hype in the marketplace towards the end of last year on the new six generation Intel Skylight processing family, with those products now coming available and coming to market, we also expect to get opportunity on increased demand for a number of the mobile devices, in particular the PC mobile devices.

Got it. Kevin, could you highlight for us touching -- basically your strategy within the mobility space. There was a small announcement made during the quarter a few weeks ago about you distributing mobile phones for the first time for, I believe, Lenovo Motorola. I'm not sure how much of that is a function of a one-off opportunity versus SYNNEX looking to perhaps do a little bit more in the handset space?

That's a great question, Osten. To be clear, our focus in mobility is really around two key areas. Number one, it's around enterprise mobility and that's really the connectivity and the solutions that drive into mobility. The other part is around devices itself but more non-smart phone devices, more around tablet and PC. As more and more devices are being connected, it's really that infrastructure beyond just Wi-Fi but on 3G, 4G, LTE networks and having the right line card to be able to have the connectivity and the network to be able to support those as well as security solution.

For the handset business that we do, do, it's not intended to be any kind of headline that we're going to be selling a significant number of handset type devices. However, if there is a trend that starts to grow in the US, Canada or Japan, where we operate in, where unlocked handset become more prevalent, we already have a number of relationships, many that are legacy relationships on the PC side of the business, where we can certainly take advantage of the opportunity to grow that side of the business, too. It's not a priority for us to be a big player selling smartphone handsets.

Got it. Thank you very much.

Thanks, Osten.

David Rold, Needham & Company.

Hi, thank you. Just to clarify on the Concentrix contract, when you say profitable, does that mean neutral relative to the other contracts or should we expect that to be a drag relative to the rest of the business on an annual basis?

It will be in line with our portfolio of business on an annualized basis.

Okay. And then could you elaborate a little more on Hyve, what you saw during the quarter? I know the year-over-year expectations were a little low just given the strength of last year, but did the quarter come in as you expected? Could you talk a little bit about your outlook on the hyper-scale service provider demand next year in linearity?

Hi, David, this is Dennis. Overall, Hyve had a very good quarter. Revenue was in line to slightly better than our expectations. As far as go forward, can't talk much outside of our current quarter but I can say that the forecast we have for the current quarter looks solid as well and we are especially encouraged by the pipeline of new customers that are moving through the system right now and we hope to turn those into solid revenue going forward.

Okay. Lastly on Canada, was the improvement you're expecting there weighted more towards commercial, consumer, or even between the two?

We saw improvement in both segments. I think probably the one thing that was a little bit different in our fourth quarter, our commercial business and the commercial market overall in Canada throughout the year had been stronger than the overall consumer segment, but we did see more strength, I think, both in the market as well as in our own performance in consumer in Q4 in addition to continued strength on the commercial side of the business.

And then just in terms of the outlook, though? Is that more weighted towards either of the two, or should we expect both to continue?

We should expect -- our expectation is both will continue. We are more heavily weighted on the commercial side of our business in Canada and so that's really where more of the focus is on.

Okay. Great. Thank you.

Thank you.

[Luma Shosha].

Great. Could you expand at all about Dell and their desire to move things forward with yourself and the channel in general? Will any of that change with possibly the EMC deal coming up to a close?

As we've come just beyond our first anniversary in our relationship with Dell, I can tell you that everything is going at or above the plans that we are tracking very well to expectation. We continue to see a lot of growth opportunity there. It's not just earning our fair share of business with Dell was is already legacy in the channel, but Dell has been making proactive movements to shift a lot of their business that had gone direct into the channel.

So we've seen movement there, in particular on the PC side of the business, with increased focus on the enterprise side as well. Both present probably bigger growth opportunities to SYNNEX than it would to some others that had legacy relationships, so we do view that as all upside incremental growth opportunity for us. With EMC, because we were not an EMC partner prior to the Dell relationship, that has also increased our incremental upside that we see and that really does help us round out some of our overall enterprise offering as well. We're optimistic on our relationship and growing our business with Dell.

Okay. On the $4 million higher depreciation, if we annualize that and tax it, looks like it might come out to about $0.25. Is that something you think you can overcome in a different area, or do you think that, that should just be played through in our models in comparison to maybe what we were thinking before on the full year 2016?

This is Marshall. No. It sticks out in Q1 just because of the way the relation plays to revenue but we're going to overcome it and offset it in full 2016.

Okay, thank you.

(Operator Instructions)

At this time, speakers, there are no further questions in queue.

Okay. Thank you very much, Laura, and again, I want to thank all of you for joining our call today. Happy new year to all of you and we look forward to engaging with you in the coming weeks.

That concludes today's conference. Thank you for participating. You may now disconnect.